I've been using Omnisharp-VsCode extension for years on my daily job. It's far from ideal, especially the initial setup experience.
I think here's what's going on: It appears VS Code is Microsoft's main IDE and C# is the main language. Not surprised they decided to obtain more control over the integration to improve the experience. In terms of management, it's always easier to cut all the external dependencies (community) and "just do it", even though it's absolutely against the open source spirit and definitely will hurt their community relationships and the trust.
Can't say the decision is an absolute evil.